Battle of Swiss vs Swiss-type formula continues in NAMA negotiations

by Kanaga Geneva (South North Development Monitor)
Geneva, 13 June 2005

Negotiations on non-agricultural market access(NAMA) at the WTO wrapped up a week-long meeting Friday (10 June) with theChair of the talks indicating that support for a simple Swiss formula for tariffreduction 'has grown measurably, with the support depending on the level of thecoefficients and their linkages with the flexibilities.'

However, several delegates from developing countries told SUNS that they had notendorsed the Swiss formula, and some said they were opposed to it. This formula hasbeen championed by major developed countries led by the US and the EC, andsupported by a number of developing countries, particularly from Latin America.

The meeting thus continued to see a sharp divide between those advocating a 'simpleSwiss formula', and those opposed to it.

The so-called simple Swiss formula represents an 'aggressive' approach, requiringdrastic cuts in tariffs, with deeper cuts for higher tariffs. This will affect mostdeveloping countries more, as their tariffs are generally higher than those ofindustrialized countries.

Opposing the simple Swiss formula, Argentina, Brazil and India had proposed anothernon-linear formula (known in WTO jargon as the Swiss-type formula or the Girardformula) which incorporates the average bound tariff of a country into the equation.This will soften the tariff cuts, especially for countries with higher bound averagetariffs.

Much of the week-long NAMA meeting was devoted to a discussion of the formulafor tariff reduction. A significant part of the discussion dealt with the proposal byArgentina, Brazil and India (referred to as the ABI proposal, TN/MA/W/54) whichhad been tabled at the last NAMA meeting in April.

The ABI proposal (which deals with the formula for tariff reduction, the treatment ofunbound tariff lines and special and differential treatment for developing countries)supports a flexible 'Swiss type' formula based on each member's average bound rate,using as a coefficient the average bound rate.

During the discussions on Monday and Tuesday on the ABI proposal (see SUNS#5817 for detailed reports on the discussions), Argentina, Brazil and India defendedtheir proposal as the only one that can achieve a balanced result taking into accountthe mandate, the needs of developing countries and providing Special and DifferentialTreatment and Less than Full Reciprocity.

They said that a simple Swiss formula (proposed by the US) leads to harmonizationamong countries, which they said, is not in the mandate, and it does not take intoconsideration each country's development needs and reverses the principle of 'lessthan full reciprocity' by reducing the tariffs of developing countries more. They alsosaid that it has particularities that if not corrected can lead to unwanted andunbalanced results.

They stressed that their formula is the one that best addresses two aspects of themandate: attack peaks, tariff escalation and high tariffs and takes into account thespecial needs of developing countries. They added that simple solutions proposed bysome members can lead to disastrous results.

They said that the argument of promoting South-South trade is not contemplated inthe mandate, and focusing on barriers to South-South trade 'conveniently distractsattention from Northern protectionism, which is the critical issue here'.

The ABI proposal was strongly opposed by Japan, the US, the EC, Canada, NewZealand, Korea, and Costa Rica. The often strong statements placed the ABI proposalunder considerable pressure.

Japan used a power point presentation to try to illustrate their contention that the ABIproposal is 'not equitable', will not 'redress the tariff rate disparities amongMembers', and will not improve enough the market access for products of interest tomany developing countries.

The US also made a presentation to defend a simple Swiss formula with twocoefficients, saying it was straightforward as it had only one element (the coefficient)to be applied to each member's tariff schedule. It said that a Girard-type formula 'haslittle effect on tariff peaks and preserves high tariffs and nearly all of the peaks'.

New Zealand claimed the ABI proposal 'will widen rather than narrow inequitiesamong members'. Norway called it discriminating and said 'we should get rid of it.'The EC claimed it is a minority proposal which doesn't tackle high tariffs, tariffescalation and peaks.

However, several developing countries were against the simple Swiss formula andsome in favour of the ABI proposal as an alternative. Those who spoke in this veinincluded Caribbean countries, such as Guyana, Barbados, Jamaica and Trinidad andTobago. They insisted on the need to provide policy space for developing countries.They said this policy space can only be achieved by maintaining a gap between theapplied rates and the bound rates. This policy space will not be there if bound ratesare reduced drastically.

According to trade officials, some countries also said they supported the reference toNAMA in the declaration of the APEC ministerial meeting in South Korea on 2-3June, which called for 'substantial improvements in market access opportunities,including a Swiss formula with coefficients to be negotiated for tariff reductionapplied on a line by line basis, the principle of binding all tariff lines and makingthem subject to the tariff reduction formula'.

At a formal wrap-up session Friday of the Negotiating Group, Chairman StefanJohannesson of Iceland said: 'My impression from our discussions is that support fora simple Swiss formula has grown measurably, with the support depending on thelevel of the coefficients and their linkage with the flexibilities'.

He also said that 'while much progress has been made, there are many issues thatremain to be addressed'.

An African delegate said outside the meeting that most African countries had notactively taken part in the meeting as most of them had been at the African TradeMinisters' Conference in Cairo taking place at the same time as the NAMA meeting.

At the formal NAMA meeting on Friday, Kenya also presented a summary of theAfrican Ministers' Declaration pertaining to NAMA. The Declaration said that theMinisters are concerned that some of the proposals on the formula submitted by WTOMembers would result in deep tariff reductions by some African countries incomparison to developed countries; contrary to the principle of less than fullreciprocity and special and differential treatment (SDT) enshrined in the Dohamandate.

In addition, African countries would be adversely affected as these proposals wouldresult in erosion of their preferences. This would undoubtedly deepen the crisis ofde-industrialization and accentuate the unemployment and poverty crisis confrontingAfrican countries.

The Declaration called for an appropriate formula or tariff approach that would allowAfrican countries to undertake industrial policy and diversification objectives andtake as priority the principles of non-reciprocity and SDT. It asked for policy spaceand flexibility that fully takes account of African countries' developmental, financialand industrial needs which removes the risk of de-industrialization, and provideflexibilities for African countries to determine their binding coverage commensuratewith their development objectives.

The Declaration also opposed sectoral initiatives because of their potentialdetrimental effects on African countries, and underscored that negotiations onnon-tariff barriers should be conducted in tandem with those on tariff reductions inthe NAMA negotiating group.

Meanwhile, on Thursday, the NAMA Group held discussions on non-tariff barriers(NTBs), with a new notification by the EC on export taxes (TN/MA/W/46 Add 12).

The EC was of the view that there is a lack of discipline in the application of exporttaxes and that this practice could distort international trade and reduce the benefitsfrom trade of other WTO members in different ways.

The notification by the EC says that in a sample of 103 countries, half of them applyexport taxes and some of them apply levels higher than 15%. The products affectedare textiles, leather, skins and hides, minerals and metal products as well as wood andforestry products.

The EC said the ideal solution would be to eliminate these taxes but an intermediatesolution would be to reduce them. The EC also said that the 'bare minimum' thatshould be done would be to have disciplines, adding that one of the basic distortionscreated by these taxes is that importers of manufactured goods cannot get the rawmaterials they need.

Japan supported the EC statement, saying that as well as import duties, export dutiesshould also be at the negotiating table.

Argentina, Malaysia and Paraguay however said that there is no mandate to discussexport taxes and that this practice is not an obstacle to trade. These countries also saidthat the export taxes are useful as a policy tool for developing countries, and toencourage the development of domestic industries and areas in which the countrieshave competitive raw materials. They denied that this was a question of marketaccess.

Mexico also made a presentation on its proposal for the treatment of unbound tariffs.

There was also a short discussion on ad valorem equivalents (AVEs), with manycountries saying that the formula agreed on AVEs at the agricultural negotiationscannot be automatically applied to NAMA, although many elements can be used.NAMA needs a simpler solution, these countries said.

The US said that the only area in which NAMA must differ is in the use of filters.'The two-tier filtering system adds a complexity that is not needed in NAMA,' theUS said.

At the end of the meeting, the Chair also said that he has organized a four-day sessionof the Negotiating Group on 28 June to 1 July.

According to trade sources, the Chair indicated that he would like a draft (to be usedfor the July 'first approximation') to be produced from the meeting.